Wholesale Real Estate Investing: Contract Assignment

Author: smacharia11 | Posted: 20.12.2011

Wholesale real estate investing is an integral part of a real estate investors business when they buy properties from motivated sellers. They must buy the properties low enough so that they can sell them at wholesale prices and still make a profit.

Contract assignment means that you assign the right to buy the property from yourself to another buyer, usually a real estate investor.

In other words, you simply change the name of the buyer to the real estate investor for an assignment fee.

Everything else on the contract remains the same.

How does it work?

Here is how contract assignment works:

1) Get the property under contract

Once you identify a property from a motivated seller, you put it under contract. The contract must have a clause that allows you to assign it.

The easiest way to do this is put the buyer with "and or assigns", e.g. "My Company Name and or assigns".

If you exclude this little clause, you may be unable to get the contract assigned. It is very important that you let the seller know that you can assign the contract to another investor.

I also let them know that I could get into partnership with another investor in this deal. The important point is to let them know that the end result will be the same, and that you will make some profit out of the deal.

2) Get title work done

This is usually done by a title company or closing attorney.

3) Get assignment contract signed

You then sign a contract where you assign your right to buy the property to a real estate investor buyer.

You must collect earnest money when you sign the contract. Earnest money usually goes to the closing agent. Usually I credit the earnest money to the deal at closing; if they do not close the deal they stand to lose it.

4) Close the deal

The new buyer then finances the transaction ready for closing. You walk home with your assignment fee at closing.

Advantages and disadvantages of contract assignment

When you assign a contract, you eliminate the need to close two transactions in incur two closing costs.

The assignment fee stated in the contract is what you walk home with.

It is important to show the assignment fee in the contract.

The contract fee also shows in the closing statement, meaning that all parties can see how much you make in the deal.

This means that some sellers or even buyers could develop cold feet when they think you are making a lot of money and back out of the deal. I only use contract assignment when I will make little money. I use simultaneous closing when I stand to make $5000 or more in the deal.

It is also impossible to assign some deals such as REOs and deals involving a Realtor. Such contracts usually specifically disallow contract assignment.

The biggest advantage is that you can make a deal happen with little to no cost and walk away with a profit, even when you stand to make little money.

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